Report: Rail rate premiums skyrocket

During the past six years, rate premiums paid by shippers to railroads have skyrocketed by 90 percent, even as carload volume has fallen by 1.1 percent, according to a recently released report by Escalation Consultants.
In “Analysis of Freight Rail Rates for U.S. Shippers,” the firm analyzed rates from Class I railroad data for 2011 and 2005 as recorded by the Surface Transportation Board and calculated the ratio of revenue to variable costs for each carrier. The board, Escalation said, tends to look into any carrier with a ratio of more than 180 percent.
Escalation Consultants found that more than half of Class I railroads exceeded the 180-percent threshold in 2011, and that shippers paid a 53-percent premium for the carloads offered by railroads that exceeded the threshold. These rates equated to shippers paying a $16-billion premium in 2011, with coal, chemicals and plastics, and transportation equipment as the top three commodities for which shippers paid the largest premiums.
“It didn’t matter what was shipped, where it was shipped or even how much was shipped. The research found that few American manufacturers are spared from soaring freight rail rates,” Jay Roman, president of Escalation Consultants, said in a statement. “Given that rate increases are clearly not driven by increased demand, this type of pricing behavior is not indicative of a competitive marketplace for freight rail service.”
The firm found that 23 percent of the rates examined exceeded the threshold by a multiple of three.
“The release of this new compelling economic research puts a spotlight on a growing problem that farmers and other producers in the United States have been enduring for many years,” Terry Whiteside, chairman of the Alliance for Rail Competition, stated.
The data is pushing Whiteside and officials from other organizations that represent shippers to demand industry reforms. Bruce Carlton, president of the National Industrial Transportation League, said the report only drives home the need for competitive switching and other regulation reforms. Cal Dooley, president and chief executive officer of the American Chemistry Council, said such reforms would help level the playing field. He added that an examination of the STB is also in order.
“Domestic producers across many different sectors of our economy share a common problem, and we are committed to finding reasonable and meaningful solutions for both shippers and railroads,” he stated. “For American manufacturers to succeed in the global marketplace so we can continue to invest and contribute to the creation of jobs in the United States, we must all compete. This means that policymakers must reform the STB to be more efficient and effective and must allow the marketplace to lead by enacting policies such as competitive switching.”